Taxpayer has a 20 year old child who is a student. Child earns about $5,000 in wages which are used to pay rent at school, etc. Parents are paying tuition for the child, which effectively means they are paying more than 50% of support and thus the child is not able to claim themselves as a dependent.
Parents AGI exceeds the eligibility range for Education credits.
But if the child is gifted the funds into their personal bank account, and tuition is then paid by the student out of that account, and assuming those tuition payments, plus rent paid from their earned income exceeds 50% of their support, would the child then be able to claim themselves on their returns and thus qualify for the refundable AOTC?
Obviously we're now talking $1000 refundable AOTC on the kids return vs $500 Other Dependent Credit on the parents' return.
But can gifted funds be used for the student to pass the (self) support test?
Seems too convenient, but might be good tax strategy?... well for 500 bucks at least... it's something.